NOTE 20: RELATED PARTY TRANSACTIONS

Equity Method Investments

In June 2011, the Company established KS China Co., Limited (“KSC”) with E-Land Fashion China Holdings Limited (“E-Land”). The joint venture was a Hong Kong limited liability company and its purpose was to market and distribute small leather goods and other fashion products and accessories in China under the kate spade brand. The Company accounted for its then-40.0% interest in KSC under the equity method of accounting until the Company’s purchase of the remaining 60% interest in KSC and sale of a 50% interest in KSC to Walton Brown in the first quarter of 2015. The Company made capital contributions to KSC of $2.4 million and $5.5 million in 2014 and 2013, respectively.

In the first quarter of 2015, the Company and Walton Brown formed two joint ventures focused on growing the Company’s business in Greater China. Following the formation of the joint ventures, both Kate Spade Hong Kong, Limited, a wholly-owned subsidiary of the Company, and Walton Brown each own 50.0% of the shares of KSC and KS HMT, the holding company for the KATE SPADE businesses in Hong Kong, Macau and Taiwan.

With an equal partnership structure, the Company and Walton Brown actively manage the businesses together. The joint ventures each have an initial term of 10 years. To effectuate the new joint ventures, (i) the Company acquired a 60.0% interest in KSC (in which the Company already owned a 40.0% interest) from E-Land, its former partner in China, for an aggregate payment of $36.0 million, comprised of $10.0 million to acquire E-Land’s interest in KSC and $26.0 million to terminate related contracts and (ii) the Company received a net $17.4 million from LCJG for their 50.0% interests in the joint ventures, subject to adjustments. As a result, the Company no longer consolidates the operations for the businesses in Hong Kong, Macau and Taiwan, which it acquired on February 5, 2014 and had net sales of approximately $34.0 million in 2014 and $6.4 million in 2015, through the transaction date. Upon closing of the KS HMT joint venture, $16.0 million of goodwill related to the KATE SPADE businesses in Hong Kong, Macau and Taiwan and $14.0 million of net assets of KS HMT were reclassified to Investment in unconsolidated subsidiaries, which was included in Other Assets on the accompanying Consolidated Balance Sheets. The Company concluded the carrying values of the assets and liabilities for Hong Kong, Macau and Taiwan approximated fair value, due in part to the then-recent acquisition of those territories from Globalluxe. Accordingly, no gain or loss was recorded on the formation of KS HMT. The $26.0 million charge incurred in the first quarter of 2015 to terminate contracts associated with the KSC joint venture is recorded in SG&A on the accompanying Consolidated Statement of Income.

The Company accounts for its investments in the joint ventures under the equity method of accounting. The Company’s equity in losses of its equity investees was $6.5 million, $6.7 million and $2.6 million during the twelve months ended December 31, 2016, January 2, 2016 and January 3, 2015, respectively. During the third quarter of 2015, the Company and Walton Brown each loaned $5.0 million to KSC. During the first quarter of 2016, the Company and Walton Brown each made additional loans of $0.7 million to KSC and $5.8 million to KS HMT. As of December 31, 2016 and January 2, 2016, the Company recorded $30.5 million and $28.1 million, respectively, related to its Investments in and advances to unconsolidated subsidiaries, which was included in Other assets on the accompanying Consolidated Balance Sheets.

The summarized balance sheet data of the Company’s equity method investees includes KSC and KS HMT.


In thousands	December 31, 2016		January 2, 2016
Current assets	$	28,693	$	35,465
Other assets		31,314		34,282
Total assets	$	60,007	$	69,747

Current liabilities	$	10,057	$	26,409
Other liabilities		24,875		11,473
Partners’ equity		25,075		31,865
Total liabilities and partners’ equity	$	60,007	$	69,747

The summarized statement of operations data of the Company’s equity method investees includes KSC for all periods presented and KS HMT from the date of the formation of the joint venture in the first quarter of 2015.


	Fiscal Years Ended
In thousands	December 31, 2016		January 2, 2016		January 3, 2015
Net Sales	$	55,101	$	51,631	$	16,036
Gross Profit		33,425		31,533		10,772
Net Loss		(12,499)		(13,307)		(6,713)